<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
---------- ----------
Commission File Number 0-20125
BASIN EXPLORATION, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 84-1143307
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
370 17TH STREET, SUITE 3400, DENVER, CO 80202
(Address of principal executive offices) (Zip Code)
(303) 685-8000
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES X NO
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
Common stock, as of the latest practicable date.
Outstanding at
Class October 30, 1998
-------------------- --------------------
Common stock, $.01 par value 13,910,000 shares
<PAGE>
BASIN EXPLORATION, INC.
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page
----
<S> <C>
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets as of
December 31, 1997 and September 30, 1998. . . . . . . . . . . . . . . 3
Consolidated Statements of Operations for the
three and nine months ended September 30, 1997 and 1998 . . . . . . . 5
Consolidated Statements of Changes in
Stockholders' Equity. . . . . . . . . . . . . . . . . . . . . . . . . 6
Consolidated Statements of Cash Flows for the
three and nine months ended September 30, 1997 and 1998 . . . . . . . 7
Notes to Consolidated Financial Statements. . . . . . . . . . . . . . 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . . . . 10
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . 21
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
</TABLE>
<PAGE>
BASIN EXPLORATION, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND SEPTEMBER 30, 1998
ASSETS
<TABLE>
<CAPTION>
(In thousands)
December 31, September 30,
1997 1998
----------- ------------
<S> <C> <C>
CURRENT ASSETS
Cash and equivalents $ 531 $ 1,730
Accounts receivable 8,348 7,667
Prepaids and other 3,805 2,940
----------- ------------
12,684 12,337
----------- ------------
PROPERTY AND EQUIPMENT, at cost:
Oil and gas properties, under the full
cost method of accounting
Proved 177,704 42,536
Unproved 15,669 36,836
Less accumulated depreciation,
depletion and amortization (46,284) (66,657)
----------- ------------
147,089 212,715
Furniture and equipment, net 2,086 1,645
----------- ------------
149,175 214,360
----------- ------------
OTHER ASSETS 100 277
----------- ------------
$161,959 $226,974
----------- ------------
----------- ------------
</TABLE>
The accompanying notes are an integral part of these
Consolidated financial statements.
3
<PAGE>
BASIN EXPLORATION, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND SEPTEMBER 30, 1998
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
(In thousands, except share data) December 31, September 30,
1997 1998
----------- ------------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 8,087 $ 9,336
Accrued liabilities 12,067 11,976
Accrued ad valorem taxes 2,394 2,144
Income taxes payable 19 --
Current portion of long-term debt 153 92
----------- ------------
22,720 23,548
----------- ------------
LONG-TERM DEBT, net of current portion 11,053 70,500
OTHER LONG-TERM OBLIGATIONS 266 445
DEFERRED INCOME TAXES 6,555 7,672
STOCKHOLDERS' EQUITY:
Preferred stock, par value $.01 per
share; 10,000,000 shares authorized,
no shares issued and outstanding -- --
Common stock, par value $.01 per
share, 50,000,000 shares authorized,
13,833,000 and 14,094,000 shares
issued, respectively 138 141
Additional paid-in capital 110,627 112,972
Retained earnings 12,012 14,239
Common stock held in treasury, at cost,
120,000 and 184,000 shares, respectively (1,412) (2,543)
----------- ------------
Total stockholders' equity 121,365 124,809
----------- ------------
$161,959 $226,974
----------- ------------
----------- ------------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
4
<PAGE>
BASIN EXPLORATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
(In thousands, except per share data) 1997 1998 1997 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
REVENUE:
Oil sales $ 2,737 $ 2,545 $ 6,720 $ 7,932
Gas sales 4,139 11,553 5,910 28,317
Interest and other, net 30 46 254 59
------- ------- ------- -------
6,906 14,144 12,884 36,308
------- ------- ------- -------
COSTS AND EXPENSES:
Lease operating expenses 1,029 1,976 3,065 6,569
Production taxes 258 190 893 628
Depreciation, depletion and
Amortization 2,979 8,413 5,375 21,140
General and administrative, net 838 1,155 2,441 3,257
Interest expense 316 500 487 1,288
------- ------- ------- -------
5,420 12,234 12,261 32,882
------- ------- ------- -------
INCOME BEFORE INCOME TAXES 1,486 1,910 623 3,426
Income tax provision 520 668 218 1,199
------- ------- ------- -------
NET INCOME $ 966 $ 1,242 $ 405 $ 2,227
------- ------- ------- -------
------- ------- ------- -------
EARNINGS PER SHARE:
Basic $ 0.09 $ 0.09 $ 0.04 $ 0.16
------- ------- ------- -------
------- ------- ------- -------
Diluted $ 0.09 $ 0.09 $ 0.04 $ 0.16
------- ------- ------- -------
------- ------- ------- -------
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING:
Basic 10,757 13,884 10,720 13,838
Diluted 10,872 14,199 10,778 14,320
</TABLE>
The accompanying notes are an integral part of these
Consolidated financial statements.
5
<PAGE>
BASIN EXPLORATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM JANUARY 1, 1997 THROUGH SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TREASURY STOCK TOTAL
------------ PAID-IN -------------- RETAINED STOCKHOLDERS
(In thousands) SHARES AMOUNT CAPITAL SHARES AMOUNT EARNINGS EQUITY
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCES, January 1, 1997 10,757 $108 $ 59,219 (56) $ (132) $ 9,556 $ 68,751
Issuance of common stock 3,001 30 51,340 - - - 51,370
Common stock offering costs - - (499) - - - (499)
Purchase of treasury stock - - - (64) (1,280) - (1,280)
Issuance and vesting of
restricted stock 75 - 567 - - - 567
Net income - - - - - 2,456 2,456
-----------------------------------------------------------------------------------------
BALANCES, December 31, 1997 13,833 138 110,627 (120) (1,412) 12,012 121,365
Issuance of common stock 92 1 440 - - - 441
Purchase of treasury stock - - - (2) (23) - (23)
Issuance and vesting of
restricted stock 90 1 798 - - - 799
Exercise of warrants for
common stock 79 1 1,107 (62) (1,108) - -
Net income - - - - - 2,227 2,227
-----------------------------------------------------------------------------------------
BALANCES, September 30, 1998 14,094 $141 $112,972 (184) $(2,543) $14,239 $124,809
-----------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these
Consolidated financial statements
6
<PAGE>
BASIN EXPLORATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
(In thousands) 1997 1998 1997 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 966 $ 1,242 $ 405 $ 2,227
Adjustments to reconcile net income to
net cash provided by operating activities -
Depreciation, depletion and amortization 2,979 8,413 5,375 21,140
Deferred income tax provision 954 686 652 1,117
Stock compensation expense 55 143 182 462
Other 1 (30) (3) (14)
Changes in operating assets and liabilities -
Decrease (increase) in
Receivables 1,339 377 (803) 676
Prepaids and other (320) 1,766 (1,456) 927
(Decrease) increase in -
Accounts payable and accrued liabilities (1,339) 3,385 (593) 2,722
Ad valorem taxes and other 157 108 748 (71)
Income taxes payable - - (958) (19)
-------- -------- -------- --------
Net cash provided by operating activities 4,792 16,090 3,549 29,167
-------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital additions (13,067) (29,708) (47,267) (87,585)
Deposits on offshore leases - (239) - (239)
Proceeds from sale of property and equipment - 30 195 52
-------- -------- -------- --------
Net cash used in investing activities (13,067) (29,917) (47,072) (87,772)
-------- -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable and long-term debt 15,500 17,000 30,000 73,000
Principle payments on notes payable and
long-term debt (6,536) (3,039) (7,182) (13,614)
Issuance of common stock - 135 - 441
Purchase of treasury stock - (3) (4) (23)
-------- -------- -------- --------
Net cash provided by financing activities 8,964 14,093 22,814 59,804
-------- -------- -------- --------
INCREASE (DECREASE) IN CASH
AND EQUIVALENTS 689 266 (20,709) 1,199
CASH AND EQUIVALENTS, beginning of period 625 1,464 22,023 531
-------- -------- -------- --------
CASH AND EQUIVALENTS, end of period $ 1,314 $ 1,730 $ 1,314 $ 1,730
-------- -------- -------- --------
-------- -------- -------- --------
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest, net of amounts capitalized $ 229 $ 422 $ 285 $ 968
-------- -------- -------- --------
-------- -------- -------- --------
Cash paid for income taxes - - $ 958 $ 119
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements
7
<PAGE>
BASIN EXPLORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) UNAUDITED FINANCIAL STATEMENTS
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting only of normal
recurring items) necessary to present fairly the financial position of Basin
Exploration, Inc. and its wholly-owned subsidiaries (collectively, "Basin" or
"the Company") as of September 30, 1998, and the results of operations and
cash flows for the three and nine month periods presented. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to the Securities and
Exchange Commission's rules and regulations. The results of operations for
the periods presented are not necessarily indicative of the results to be
expected for the full year. Management believes the disclosures made are
adequate to ensure that the information is not misleading and suggests that
these financial statements be read in conjunction with the Company's Annual
Report on Form 10-K for the year ended December 31, 1997.
(2) ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities. The Statement establishes accounting and reporting
standards requiring that every derivative instrument (including certain
derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair value.
The Statement requires that changes in the derivative's fair value be
recognized currently in earnings unless specific hedge accounting criteria
are met. Special accounting for qualifying hedges allows a derivative's
gains and losses to offset related results on the hedged item in the income
statement, and requires that a company formally document, designate, and
assess the effectiveness of transactions that receive hedge accounting.
The Company is required to adopt the Statement as of January 1, 2000. The
Company may also implement the Statement as of the beginning of any fiscal
quarter prior to that date. Statement 133 cannot be applied retroactively.
The Company has not yet quantified the impacts of adopting Statement 133 on
its financial statements and has not determined the timing or method of
adoption of Statement 133.
(3) ACCOUNTING FOR OIL AND GAS PROPERTIES
The Company follows the full cost method of accounting for oil and gas
properties. Under this method, all costs associated with the development,
exploration and acquisition of oil and gas properties are capitalized. If
capitalized costs, net of amortization and related deferred taxes, exceed the
full cost ceiling, the excess would be expensed in the period such excess
occurs. Calculation of the full cost ceiling includes an estimate of the
discounted value of future net revenue attributable to proved reserves using
various assumptions and parameters consistent with promulgations of the
Securities and Exchange Commission, and such calculation is sensitive to
changes in prevailing oil and gas sales prices.
8
<PAGE>
BASIN EXPLORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Oil and natural gas prices are volatile and reflect seasonal factors, as well
as other supply and demand conditions. A decline in prices could result in a
requirement that the Company recognize an impairment expense in a future
period.
9
<PAGE>
BASIN EXPLORATION, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Consolidated
Financial Statements and the Notes thereto.
Basin is a domestic independent oil and gas company that conducts
exploration, acquisition and exploitation operations in the shallow waters
of the Gulf of Mexico ("GOM") and selected areas onshore. Basin's revenue
and results of operations are significantly affected by oil and gas prices.
Assuming level production, the Company's revenues would generally be higher
in the first and fourth quarters of the calendar year, due to typically
higher natural gas prices resulting from greater demand during colder months.
The Company commenced operations in 1981 and primarily acquired, developed
and exploited properties in the Denver-Julesberg ("D-J") Basin in eastern
Colorado through 1991. In 1992, the Company began expanding into other areas
within the Rocky Mountain region and initiated exploration activities. In
1996, the Company sold its D-J Basin properties for $123.5 million (the "D-J
Sales") and initiated operations in the GOM.
The Company began GOM activities in 1996 with no initial property base in the
region, and its early investments related primarily to acquisitions of
three-dimensional seismic data and exploratory leasehold interests. The
Company's first significant discovery in the GOM was the Eugene Island Block
65 #1 well, which was drilling at the end of 1996 and completed in 1997.
First production from GOM assets was realized in August 1997 when the Company
brought two wells drilled on Eugene Island Block 65 on-line. The Company
added other proved properties in the GOM in 1997 through both exploratory
drilling and acquisitions and at the beginning of the current year it owned
interests in five producing properties and had nine wells under development
on eight lease blocks. During the first nine months of 1998, seven of these
wells established initial production and produced for a portion of the
period. The Company participated in drilling 15 GOM exploratory wells during
the first nine months of 1998, of which nine were apparent discoveries. One
of these wells commenced production in the second quarter of 1998 and the
other eight are currently under development for initial production.
RESULTS OF OPERATIONS
The following operating and financial data is provided to assist in
understanding results of operations for the periods presented.
10
<PAGE>
BASIN EXPLORATION, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
- ------------------------------------------------------------------------------------------------
1997 1998 1997 1998
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PRODUCTION:
Oil (MBBL) 147 173 356 545
Gas (MMCF) 1,688 5,296 2,490 12,633
Total gas equivalents (MMCFE) 2,570 6,334 4,626 15,903
REVENUE (IN THOUSANDS):
Oil sales $2,737 $ 2,545 $ 6,720 $ 7,932
Gas sales $4,139 $11,553 $ 5,910 $28,317
Total oil and gas sales $6,876 $14,098 $12,630 $36,249
AVERAGE SALES PRICE:
Oil (PER BBL) $18.59 $ 14.74 $ 18.88 $ 14.55
Gas (PER MCF) $ 2.45 $ 2.18 $ 2.37 $ 2.24
Total gas equivalents (PER MCFE) $ 2.67 $ 2.23 $ 2.73 $ 2.28
EXPENSES (PER MCFE):
Lease operating expenses $ 0.40 $ 0.31 $ 0.66 $ 0.41
Production taxes $ 0.10 $ 0.03 $ 0.19 $ 0.04
Depreciation, depletion and amortization $ 1.16 $ 1.33 $ 1.16 $ 1.33
General and administrative, net $ 0.33 $ 0.18 $ 0.53 $ 0.20
</TABLE>
REVENUE. Oil and gas sales for the three months ended September 30, 1998
totaled $14,098,000, representing an increase of $7,222,000, or 105%,
compared to the third quarter of 1997. A 146% increase in net oil and gas
production was partially offset by a 16% decline in unit prices, based on net
equivalent unit measures. Oil and gas sales for the nine months ended
September 30, 1998 totaled $36,249,000, representing an increase of
$23,619,000, or 187%, compared to the first nine months of 1997. A 244%
increase in net oil and gas production was partially offset by a 16% decline
in unit prices, based on net equivalent unit measures. The significant
increases in oil and gas production are attributable to increased
contributions in 1998 from GOM properties. As noted above, the Company's
first GOM production was realized in August 1997. Due to the addition of GOM
production, which is predominantly natural gas, gas increased from 54% of net
equivalent units produced in the first nine months of 1997 to 79% of the
Company's total oil and gas production in the first nine months of 1998 and
84% of production in the three months ended September 30, 1998. See
"Liquidity and Capital Resources" for additional discussion of oil and gas
production.
LEASE OPERATING EXPENSES. Due primarily to adding production from new GOM
properties, lease operating expenses for the three and nine months ended
September 30, 1998 increased by $947,000, or 92%, and $3,504,000, or 114%,
respectively, from amounts reported for the comparable periods in the prior
year. However, lease operating costs per Mcfe produced declined by
approximately 23% and 38%, respectively, over the same periods, because the
GOM wells added have significantly lower average unit operating costs than
the Company's Rocky Mountain properties.
11
<PAGE>
BASIN EXPLORATION, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PRODUCTION TAXES. Production taxes for the three and nine months ended
September 30, 1998 were $190,000, and $628,000, representing decreases of
$68,000, or 26%, and $265,000, or 30%, respectively, from amounts reported
for the comparable periods in 1997. These declines were due to reduced
revenues from onshore properties caused primarily by lower oil and gas
prices. Production taxes as a percent of oil and gas sales for the three and
nine months ended September 30, 1998 were 1.3 % and 1.7%, compared to 3.8%
and 7.1%, respectively, in 1997, due to increased sales in 1998 from
properties in federal waters offshore, which are generally not subject to
production taxes.
DEPRECIATION, DEPLETION AND AMORTIZATION. Depreciation, depletion and
amortization expenses for the three and nine months ended September 30, 1998
were $8,413,000 and $21,140,000, respectively, representing corresponding
increases of $5,434,000, or 182%, and $15,765,000, or 293%, compared to the
same periods in 1997. The increases were largely attributable to greater
production volumes in 1998. In addition, the depletion rate of $1.28 per
Mcfe produced in the three and nine month periods ended September 30, 1998
represented a 20% increase from the $1.07 per Mcfe and a 27% increase from
the $1.01 per Mcfe depletion rates during the comparable periods of 1997.
The higher rates are due to proved reserves added at a higher average unit
cost than the Company's previous historical average and to the unfavorable
impact on estimated proved reserve quantities of using lower assumed future
oil and gas prices at September 30, 1998 than those used one year earlier.
The increased unit cost of additions reflects the substantial portion of the
Company's investments and reserve additions during the past year that relate
to the GOM, where higher unit costs are generally associated with reserves
having a higher value per unit than the Company's onshore properties, due to
typically faster recovery rates, lower production costs, and higher average
realizable gas prices.
GENERAL AND ADMINISTRATIVE, NET. General and administrative expenses for the
three and nine months ended September 30, 1998 were $1,155,000 and
$3,257,000, reflecting increases of $317,000, or 38%, and $816,000, or 33%,
respectively, as compared to 1997. The increases resulted primarily from
greater stock-based incentive compensation accruals, reflecting, in part,
increases in the price of the Company's common stock. Percentage increases
in general and administrative expenses were much smaller than increases in
production, resulting in declines in general and administrative expenses per
Mcfe produced, from $0.33 and $0.53 during the three and nine months ended
September 30, 1997, to $0.18 and $0.20, respectively, in the three and nine
months ended September 30, 1998.
INTEREST EXPENSE. Interest expense for the three and nine months ended
September 30, 1998 totaled $500,000 and $1,288,000, representing increases of
$184,000, or 58%, and $801,000, or 164%, respectively, as compared to 1997.
The increases were attributable to higher average borrowings partially offset
by the capitalization of $584,000 and $961,000 of interest to unproved
property costs in the three and nine months ended September 30, 1998,
respectively, in accordance with Statement of Financial Accounting Standards
No. 34. Average borrowings and applicable interest rates for the comparable
periods are summarized below:
12
<PAGE>
BASIN EXPLORATION, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------- -------------
1997 1998 1997 1998
<S> <C> <C> <C> <C>
Average borrowings (in thousands) $18,300 $65,500 $8,600 $45,000
Average interest rate on borrowings 6.5% 6.5% 6.7% 6.6%
</TABLE>
INCOME TAX PROVISIONS. The income tax provisions for 1997 and 1998
approximate the amounts that would be calculated by applying statutory income
tax rates to income before income taxes.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company's principal sources of capital have been cash flow
from operations, a revolving line of credit established with a group of banks
(the "Credit Facility"), proceeds from asset sales, and proceeds from sales
of common stock. The Company's principal uses of capital have been for
exploration, acquisition, development and exploitation of oil and gas
properties.
The Company's accrual-basis capital expenditures during the first nine months
of 1998 totaled approximately $86.4 million. Net cash provided by operations
before changes in working capital totaled $24.9 million during the recent
nine-month period. Other funds for investments during the period came from
borrowings under the Credit Facility. The Company closed the period ended
September 30, 1998 with a working capital deficit of approximately $11.2
million, long-term debt of $70.5 million, and stockholders' equity of $124.8
million.
The borrowing base under the Credit Facility is currently established at $90
million. The Company is presently engaged in discussions with its bank group
relating to a potential new credit facility that would provide for an
expanded line of credit, subject to changes in various other terms and
conditions applicable under the current credit agreement. Pending resolution
of these discussions, a redetermination of the borrowing base that was
regularly scheduled for November 1, 1998 has been postponed to December 1,
1998. The Company can make no assurances regarding the eventual outcome of
the current discussions concerning a potential new credit facility, but
anticipates that the next borrowing base determination will be at a level at
or above the currently established level, under either the existing Credit
Facility or its replacement.
The Company has established a budget of $110 million for anticipated
exploration and development activities in 1998. Acquisitions of properties
with proved and probable reserves are also pursued as an integral part of the
Company's overall business strategy, but are not budgeted. The Company
periodically considers changes to its budget to reflect changes in the
general business environment, variances from assumptions, or specific
business opportunities.
13
<PAGE>
BASIN EXPLORATION, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company has not yet established an initial budget for 1999, but is
presently targeting participation in GOM exploratory wells next year at a
level comparable to that of the current year, during which activity is
expected to aggregate 17 to 20 gross (8 to 10 net) wells.
Factoring in its forecasts of net oil and gas production and price
realizations, and assuming that the Company receives increases in the
borrowing base under a revolving line of credit to levels requested,
management believes that cash flow from operations and borrowing capacity
under its bank line of credit will be sufficient to fund the Company's
operations and capital expenditures through the end of 1998 unless the
Company consummates a substantial acquisition during the period. Sufficiency
of these resources to fund capital expenditures at desired levels in 1999
will depend on a number of factors including, among others, the Company's
future drilling success, oil and gas prices, and the production performance
of the Company's properties (including recent discoveries currently under
development). Each of these factors can significantly influence both cash
flow and the level of the borrowing base established under a credit facility.
As discussed below in "Production and Cash Flow," the Company anticipates
that increased cash flow in 1999, resulting largely from higher projected net
production from existing discoveries not yet on-line, will enable a greater
portion of capital expenditures, outside of proved property acquisitions, to
be met with internal resources next year than in the current year.
The majority of the Company's planned capital expenditures are related to
Company-operated properties, enabling the Company to control the character
and schedule of operations to a considerable degree.
PRODUCTION AND CASH FLOW
In each of the four fiscal quarters following the D-J Sales (covering the
period from July 1, 1996 through June 30, 1997), the Company's net oil and
gas production was approximately 1,020 MMcfe, or an average of 11.2 MMcfe per
day. During this period, net cash provided by operations before working
capital changes ranged from $0.4 million to $2.2 million per quarter and
averaged $1.3 million per quarter, varying primarily with oil and gas price
levels. The flat oil and gas production during this period reflected modest
capital expenditures on Rocky Mountain exploitation projects that offset
natural declines on producing properties. During this period, the Company
also made more significant investments in GOM exploration, development, and
acquisition activities that did not begin to impact production and cash flow
until the middle of the third quarter of 1997.
During the third quarter of 1997, the Company's average daily net production
increased to 28.0 MMcfe and cash flow from operations increased to $5.0
million, due to commencement of production in August from two wells on Eugene
Island Block 65 that the Company drilled and completed earlier in the year.
Average daily net production increased to 43.8 MMcfe in the fourth quarter of
1997, as the result of a full period's contribution from Eugene Island Block
65 and a partial period's contribution from four productive GOM properties
acquired in late-November 1997. Cash flow from operations increased to $8.7
million in the final quarter of 1997, reflecting this increase in production
and higher average unit prices attributable to strength in natural gas
markets.
14
<PAGE>
BASIN EXPLORATION, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
As additional GOM properties have been brought on line in 1998, the Company's
average daily net production has increased further, to 50.0 MMcfe in the
first quarter, 55.7 MMcfe in the second quarter, and 68.8 MMcfe in the third
quarter of the year. Cash flow from operations before working capital
changes, reflecting the combined effects of higher production and lower
average oil and gas prices, totaled $6.6 million in the first quarter, $7.9
million in the second quarter, and $10.5 million in the third quarter of 1998.
The Company expects that its average daily net production and cash flow from
operations will increase further in the fourth quarter of 1998. The primary
sources of increases are expected to be initial contributions from GOM wells
with proved nonproducing reserves at the end of September 1998, partially
offset by depletion-related declines on existing producing wells. The
Company closed the period with interests in ten GOM wells with proved
nonproducing reserves that had not yet established sustained initial
production. Production is expected to be initiated before year-end from
four to six of these wells
The Company expects that its future net cash flow will be determined
substantially by production levels and oil and gas prices. Certain costs per
unit of production have significantly improved as the Company has added
production from GOM wells and are expected to continue to improve, albeit
more modestly, as anticipated increases in GOM production occur. These
include: (i) production taxes, which are not applicable to properties in
federal waters; (ii) lease operating expenses which tend to be significantly
lower per unit in the GOM than for the Company's Rocky Mountain properties,
especially for flush production from relatively new GOM wells; and (iii)
general and administrative expenses, which are not expected to increase
proportionately as GOM production increases. As a result, net cash provided
by operations is expected to increase by a greater percentage than production
volumes, given an assumption of constant or rising oil and gas prices.
MARKETING AND HEDGING TRANSACTIONS
The Company's production is generally sold under month-to-month contracts at
prevailing prices. From time to time, however, as conditions are deemed to
warrant, Basin has entered into hedging transactions or fixed price sales
contracts for a portion of its oil and gas production. The purposes of these
transactions are to limit the Company's exposure to future oil and gas price
declines and achieve a more predictable cash flow, or to seek to enhance
profitability through improved net price realizations. However, such
contracts may limit the benefits the Company would realize if prices increase
or expose the Company to losses having the effect of reducing net price
realizations.
15
<PAGE>
BASIN EXPLORATION, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Through November 6, 1998, Basin had entered into various crude oil and
natural gas price swap arrangements covering the period beginning October 1,
1998, summarized as follows:
<TABLE>
<CAPTION>
Average
Daily Average Time Period
Product Volume Price
- -------------------------------------------------------------------
<S> <C> <C> <C>
Crude Oil 333 Bbl. $ 21.30 10/98
Crude Oil 1,000 Bbl. $ 17.00 1/99-6/99
Natural Gas 50,000 Mcf $ 2.30 10/98-12/98
Natural Gas 28,000 Mcf $ 2.19 1/99-12/99
Natural Gas 10,000 Mcf $ 2.15 1/00-12/01
</TABLE>
In addition the Company periodically enters into spread trades or options
transactions related to oil or natural gas futures markets. Under a spread
trade, fixed prices under a hedging contract are determined in the future by
reference to the price of an underlying contract. Such positions may enable
the Company to lock in favorable fixed prices for future hedging positions,
but can also result in unfavorable fixed price contracts if the reference
price represented by the underlying contract declines. As of November 6,
1998, the Company had entered into spread trades for natural gas providing
for a fixed price for 20,000 Mcf per day for the period of March 1999 through
September 1999 to be established in the future upon an election by the
Company by reference to the underlying NYMEX January 1999 contract price less
$0.31. The Company also had sold call options for 10,000 Mcf of natural gas
per day for the period from January 1999 through December 2001 that have an
average strike price of $2.50 per Mcf.
CREDIT FACILITY
The Credit Facility with a bank group led by NationsBank of Texas, N.A.
provides for the interest rate on the Company's borrowings to be determined
by reference to either NationsBank's prime rate or LIBOR, at the Company's
election. A varying spread of 0% to 0.5% is added to the prime rate, or
0.625% to .25% is applied to LIBOR, based upon the Company's
debt-to-capitalization ratio at the time. The Credit Facility provides for
borrowings to be revolving loans through October 31, 2001, at which time the
outstanding balance will be converted into a four-year amortizing term loan
unless the Credit Facility has been amended to extend the revolving period.
The borrowing base under the Credit Facility, established at $90 million as
of August 20, 1998, is scheduled to be redetermined as of December 1, 1998,
May 1, 1999, and generally at six-month intervals thereafter until converted
into a term loan.
At September 30, 1998, the principal balance outstanding under the facility
was $70.5 million, with a weighted average interest rate of 6.4%. The Credit
Facility contains various covenants, including ones that could limit the
Company's ability to incur other debt, dispose of assets, pay dividends, or
repurchase stock. Pursuant to the agreement governing the Credit Facility,
certain of the Company's properties are subject to mortgages in favor of the
banks and the Company's remaining properties are subject to a negative pledge
and the bank's right to secure mortgages in certain circumstances.
16
<PAGE>
BASIN EXPLORATION, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CAPITAL EXPENDITURES
Since the beginning of 1996, Basin has focused its exploration activities in
the shallow waters of the GOM, primarily off the coast of Louisiana. The
Company's acquisition, development, and exploitation activities target
opportunities in the vicinity of the Company's GOM exploration operations, in
the Rocky Mountain region where Basin has proved reserves and producing
wells, and in certain other major domestic producing basins where Basin
believes significant upside potential exists.
The Company's capital expenditures are generally discretionary and activity
levels are determined by a number of factors, including oil and gas prices,
availability of funds, quantity and character of identified investment
projects, availability of service providers, and competition.
The Company's budget for anticipated capital expenditures for exploration and
development in 1998 is currently established at approximately $110 million.
This budget primarily provides for: participation in 17 to 20 (8 to 10 net)
exploratory wells in the GOM; development of six GOM prospect discoveries
made in the second half of 1997; exploitation and development of five GOM
properties acquired last year; development of prospect discoveries made in
1998; and investments in prospect leaseholds and seismic data.
During the first nine months of 1998, the Company's accrual-basis capital
expenditures totaled approximately $86.4 million, including $63.0 million for
exploration and development, $21.1 million for acquisition of GOM leases,
primarily through federal offshore lease sales, and $2.3 million for
acquisitions of proved property interests. The expenditures on exploration
and development were primarily for participation in 15 GOM exploratory wells,
related completion costs on nine of these, development of several GOM
properties acquired or discovered during the prior year, and acquisitions of
three-dimensional seismic data.
In addition to these budgeted capital expenditures, the Company intends to
continue to pursue acquisitions of properties with proved and probable
reserves as an integral part of its overall business strategy, with the
expectation that such efforts will periodically result in significant
investment activity.
The amount and allocation of the Company's future capital expenditures will
depend on a number of factors that are not entirely within the Company's
control or ability to forecast, including drilling results, scheduling of
activities by other operators, availability of service providers, success in
acquiring prospect leaseholds, and success in consummating acquisitions of
proved properties. As a result, actual capital expenditures may vary
significantly from current expectations. Under certain circumstances, in
order to prudently fund its planned investments, the Company may consider
raising additional capital through issuance of debt and/or equity securities.
17
<PAGE>
BASIN EXPLORATION, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
YEAR 2000 ISSUES
The following Year 2000 statements constitute a Year 2000 Readiness
Disclosure within the meaning of the Year 2000 Information and Readiness
Disclosure Act of 1998.
Year 2000 issues result from the inability of many computer programs to
accurately calculate, store or use a date subsequent to December 31, 1999.
The date can be erroneously interpreted in a number of different ways;
typically the year 2000 is interpreted as the year 1900. This could result in
a system failure or miscalculations causing disruptions of or errors in
operations. Systems potentially affected include not only information
technology ("IT") systems -- computer systems controlling a company's
accounting, land, seismic processing, and other specialized functions -- but
also non-IT systems controlled by embedded chips, which include many common
and specialized machines and support systems.
The Company has recently completed an assessment of its core IT systems to
determine whether they are Year 2000 compliant. The licensors of both the
Company's core financial software system and its underlying operating system
have certified that such software is Year 2000 compliant. The Company's GOM
seismic data interpretation software system is not currently Year 2000
compliant, but the licensor has indicated that such software will be
compliant by April 1999. The failure or disruption of such system could have
a material adverse impact on the Company's ability to generate new prospects
on new leases offered at GOM lease sales or on existing properties, but could
also be expected to have a similar impact on many, if not most, of the
Company's competitors, since this software system is in wide use in the
industry. Additionally, the Company has assessed other less critical IT
systems and believes them to be compliant. The Company believes that the
potential impact, if any, of these less critical systems not being Year 2000
compliant will at most require employees to manually complete otherwise
automated tasks or calculations and should not impact the Company's ability
to continue exploration, drilling, production or sales activities. The
Company does not expect that it will incur material costs in remediating its
IT systems to be Year 2000 compliant.
The Company also relies on non-IT systems, such as office telephones,
facsimile machines, air conditioning and heating, elevators in its leased
offices, and automated measuring equipment on platforms and other production
facilities, which may have embedded technology such as micro-controllers.
Most of these systems are outside of the Company's control to assess or
remedy. The Company will be communicating with its equipment suppliers,
utility companies, and property managers of the buildings in which its
offices are situated to assess the compliance issues that may be presented by
failures in their respective equipment or systems. The Company is not able
to predict at this time what the impact could be of such failures but does
not believe that there will be a material disruption of the Company's
operations. The Company does not at this time have a contingency plan in
place for addressing such failures.
18
<PAGE>
BASIN EXPLORATION, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company has initiated communications with its significant suppliers,
customers, and others with whom the Company has significant business
relationships to determine the extent to which the Company is vulnerable to
those third parties' failure to correct their own Year 2000 issues. To date,
the Company has not received definitive responses from most of these entities
and therefore cannot assess whether they are Year 2000 compliant or how their
failure to be compliant would affect the Company. Until the Company has
completed its dialogue with these entities, which it anticipates will occur
by the end of the first quarter of 1999, it will not be able to assess
potential impact on the Company's operations, liquidity, or financial
condition. Among the potential "worst case" impacts could be impairment of
the Company's ability to deliver its production to, or receive payment from,
third parties gathering and/or purchasing the Company's production,
impairment of the ability of third-party vendors to provide needed materials
or services to the company's planned or ongoing operations, thereby
necessitating deferral or shut-in of exploration, development or production
operations, and the inability of the Company to execute financial
transactions with its banks or other third parties whose systems fail or
misfunction. The Company currently has no reason to believe that any of
these contingencies will occur or that its principal vendors, customers, and
business partners will not be Year 2000 compliant, and the Company does not
currently have a contingency plan under development or in place to address
these potential problems.
The Company has relied primarily on its internal staff to assess its current
Year 2000 readiness and does not anticipate extensive use of external
resources to complete its assessment or remediation. The Company has not
separately quantified its costs of internal resources on this project. The
Company has not incurred, and does not anticipate that it will incur, costs
for external resources in excess of $100,000 relating to the assessment and
remediation of Year 2000 issues. That estimate does not include the cost of
remediating problems caused by third-party vendors, customers, or other
business partners, which the Company will not be able to estimate until the
extent, if any, of their Year 2000 non-compliance is known.
19
<PAGE>
BASIN EXPLORATION, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
Statements that are not historical facts contained in this report are
forward-looking statements that involve risks and uncertainties that could
cause actual results to differ from projected results. Such statements
address activities, events or developments that the Company expects,
believes, projects, intends or anticipates will or may occur, including such
matters as future accessibility of capital, development and exploration
expenditures (including the amount, nature and timing thereof), drilling of
wells, timing and amount of future production of oil and gas, business
strategies, cash flow and anticipated liquidity, borrowing base increases,
prospect development and property acquisition, marketing of oil and gas, and
the impact on the Company of Year 2000 compliance requirements both
internally and externally. Factors that could cause actual results to differ
materially ("Cautionary Disclosures") are described, among other places, in
the Company's prospectus dated October 2, 1997 and prospectus supplement
dated October 24, 1997 and in the Marketing, Competition, and Regulation
sections of the Company's Annual Report on Form 10-K for the year ended
December 31, 1997, all as filed with the Securities and Exchange Commission,
and under the caption "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included herewith. Without limiting the
Cautionary Disclosures so described, Cautionary Disclosures include, among
others: general economic conditions, the market price of oil and gas, the
risks associated with exploration, the Company's ability to find, acquire,
market, develop and produce new properties, operating hazards attendant to
the oil and gas business especially in the harsh operating environment of the
Gulf of Mexico, downhole drilling and completion risks that are generally not
recoverable from third parties or insurance, the Company's relative
inexperience in the GOM, uncertainties in the estimation of proved reserves
and in the projection of future rates of production and timing of development
expenditures, potential mechanical failure or underperformance of
individually significant productive wells, the strength and financial
resources of the Company's competitors, the Company's ability to find and
retain skilled personnel, climatic conditions, labor relations, availability
and cost of material and equipment, delays in anticipated start-up dates,
environmental risks, the results of financing efforts, actions or inactions
of third-party operators of the Company's properties, regulatory
developments, and third-party Year 2000 compliance problems. All written and
oral forward-looking statements attributable to the Company or persons acting
on its behalf are expressly qualified in their entirety by the Cautionary
Disclosures. The Company disclaims any obligation to update or revise any
forward-looking statement to reflect events or circumstances occurring
hereafter or to reflect the occurrence of anticipated or unanticipated events.
20
<PAGE>
BASIN EXPLORATION, INC. AND SUBSIDIARIES
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
<S> <C>
2.1 -- Agreement and Plan of Merger between Sterling Energy
Corporation, Basin Energy, Inc. and Basin Exploration, Inc.
dated October 13, 1994(5)
2.2 -- Plan of Merger between Basin Sterling, Inc. and Basin
Exploration, Inc. dated November 22, 1994(5)
2.3 -- Plan of Merger between Basin Operating Company and Basin
Exploration, Inc. dated December 14, 1994(8)
3.1 -- Restated Certificate of Incorporation of Basin.(2)
3.2 -- Restated Bylaws of Basin.(2)
4.1 -- Common Stock Certificate of Basin.(2)
10.1 -- Equity Incentive Plan as amended May 5, 1998.(1)
10.3 -- Key Employee Participation Plan.(2)
10.4 -- Employment Agreement dated March 31, 1992 by and between Basin
and Michael S. Smith.(3)
10.5 -- Gulf Coast Geoscientist Overriding Royalty Interest Plan dated
November 30, 1995.(10)
10.6 -- Form of Rights Agreement dated as of February 24, 1996, between
Basin Exploration, Inc. and Corporate Stock Transfer, Inc. as
Rights Agent.(9)
10.7 -- Performance Shares Plan approved February 4, 1997.(12)
10.8 -- Change of Control Employment Agreement dated October 13, 1995
between Basin Exploration, Inc. and Howard L. Boigon.(10)
10.9 -- Employment Agreement dated August 28, 1995 between Basin
Exploration, Inc. and Samuel D. Winegrad.(10)
10.10 -- Employment Agreement dated June 28, 1995 between Basin
Exploration, Inc. and Neil L. Stenbuck.(10)
10.11 -- Employment Agreement dated November 10, 1995 between Basin
Exploration, Inc. and David A. Pustka.(10)
10.12 -- Employment Agreement dated February 23, 1996 between Basin
Exploration, Inc. and Thomas J. Corley.(12)
10.13 -- Assignment and Assumption of Lease dated December 18, 1995 by
and between Team, Inc., as original Tenant, Basin Exploration,
Inc., as New Tenant, and FC Tower Property Partners, L.P., as
Landlord.(9)
10.16 -- Agreement for Purchase and Sale of Assets (Monetization) dated
February 24, 1996 by and between Basin Exploration, Inc., HS
Resources, Inc. and Orion Acquisition, Inc.(7)
10.17 -- Agreement for Purchase and Sale of Assets (Wattenberg), dated
February 24, 1996 by and between Basin Exploration, Inc., HS
Resources, Inc. and Orion Acquisition, Inc.(7)
10.18 -- Lease of Office Space dated September 25, 1992, between
Brookfield Republic Inc. and Basin Operating Company, as
amended(4)(#)
10.19 -- First Lease of Additional Office Space dated as of December 1,
1994, between Brookfield Republic, Inc. and Basin Operating
Company.(6)(#)
10.20 -- Amended and Restated Credit Agreement dated August 6, 1996
between the Company and Colorado National Bank, Union Bank of
California, N.A. and NationsBank of Texas, N.A.(11)
10.21 -- Purchase and Sale Agreement dated February 13, 1997, between
Hall-Houston Oil Company et al as Sellers and Basin
Exploration, Inc. as Buyer.(12)(#)
10.22 -- First Amendment of Amended and Restated Credit Agreement dated
August 6, 1996 between the Company and Colorado National Bank,
Union Bank of California, N.A. and NationsBank of Texas, N.A.
dated June 11, 1997 (14)
10.23 -- Order of the United States Bankruptcy Court for the Southern
District of Texas Corpus Christi Division, dated November 18,
1997, with exhibits, including the Agreement of Purchase and
Sale.(15)
</TABLE>
21
<PAGE>
<TABLE>
<S> <C>
10.24 -- Second Amendment of Amended and Restated Credit Agreement dated
August 6, 1996 between the Company and Colorado National Bank,
Union Bank of California, N.A. and NationsBank of Texas, N.A.
dated November 1, 1997 (16)
10.25 -- Third Amendment of Amended and Restated Credit Agreement dated
August 6, 1996 between the Company and U.S. Bank National
Association, Union Bank of California, N.A. and NationsBank of
Texas, N.A. dated April 30, 1998(17)
10.26 -- Fourth Amendment of Amended and Restated Credit Agreement dated
August 6, 1996 between the Company and U.S. Bank National
Association, Union Bank of California, N.A. and Nationsbank,
N.A. dated August 20, 1998 (1)
21 -- Subsidiaries(16)
27 -- Financial Data Schedule (1)
- -------------------
(1) Filed herewith.
(2) Filed as an Exhibit to Basin's Registration Statement on Form S-1
as filed on March 17, 1992, Registration No. 33-46486, and
incorporated herein by reference.
(3) Filed as an Exhibit to Amendment No. 1 to Basin's Registration
Statement on Form S-1 as filed on April 21, 1992, Registration
No. 33-46486, and incorporated herein by reference.
(4) Filed as an Exhibit to Basin's Registration Statement on Form S-1
as filed on October 25, 1993, Registration No. 33-70802, and
incorporated herein by reference.
(5) Filed as an Exhibit to Form 8-K filed on December 10, 1994, and
incorporated herein by reference.
(6) Filed as an Exhibit to Form 10-K/A-1 filed on June 26, 1995 and
incorporated herein by reference.
(7) Filed as an Exhibit to Form 8-K filed on March 6, 1996, and
incorporated herein by reference.
(8) Filed as an Exhibit to Form 10-K filed on March 28, 1995, and
incorporated herein by reference.
(9) Filed as an Exhibit to Form 8-K filed on February 26, 1996, and
incorporated herein by reference.
(10) Filed as an Exhibit to Form 10-K filed on March 28, 1996, and
incorporated herein by reference.
(11) Filed as an Exhibit to Form 10-Q filed on August 14, 1996, and
incorporated herein by reference.
(12) Filed as an Exhibit to Form 10-K filed on March 31, 1997, and
incorporated herein by reference.
(13) Filed as an Exhibit to Form 10-Q filed on May 15, 1997, and
incorporated herein by reference.
(14) Filed as an Exhibit to Form 10-Q filed on August 12, 1997, and
incorporated herein by reference.
(15) Filed as an Exhibit to Form 8-K filed on December 11, 1997, and
incorporated herein by reference.
(16) Filed as an Exhibit to Form 10-K filed on March 31, 1998, and
incorporated herein by reference.
(17) Filed as an Exhibit to Form 10-Q filed on May 14, 1998, and
incorporated herein by reference.
(#) Confidential treatment has been granted for portions of these
Exhibits.
</TABLE>
(b) Reports on Form 8-K
None
22
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BASIN EXPLORATION, INC.
(Registrant)
Date: November 12, 1998 By: /s/ NeiL L. Stenbuck
---------------------------
Neil L. Stenbuck
Chief Financial Officer
Date: November 12, 1998 By: /s/ James A Tuell
---------------------------
James A. Tuell
Controller
(Principal Accounting Officer)
23
<PAGE>
BASIN EXPLORATION, INC.
EQUITY INCENTIVE PLAN
(as amended May 5, 1998)
SECTION 1
INTRODUCTION
1.1 ESTABLISHMENT. Basin Exploration, Inc., a Delaware corporation
(hereinafter referred to, together with its Affiliated Corporations (as
defined in subsection 2.1(a)) as the "Company" except where the context
otherwise requires), hereby establishes the Basin Exploration, Inc. Equity
Incentive Plan (the "Plan") for certain key employees, non-employee directors
and consultants of the Company.
1.2 PURPOSES. The purposes of the Plan are to provide participants
with added incentives to continue in the long-term service of the Company and
to create in such persons a more direct interest in the future success of the
operations of the Company by relating incentive compensation to increases in
stockholder value. With respect to key management employees, the Plan is
intended to help ensure that the income of these employees is more closely
aligned with the income of the Company's stockholders. The Plan is also
designed to attract key employees and to retain and motivate participants by
providing an opportunity for investment in the Company.
SECTION 2
DEFINITIONS
2.1 DEFINITIONS. The following terms shall have the meanings set forth
below:
(a) "AFFILIATED CORPORATION" means any corporation or other entity
(including but not limited to a partnership) which is affiliated with Basin
Exploration, Inc. through stock ownership or otherwise and is treated as a
common employer under the provisions of Sections 414(b) and (c) of the
Internal Revenue Code.
(b) "AWARD" means a grant made under this Plan in the form of
Stock, Options, Restricted Stock, Performance Shares, or Performance Units.
(c) "BOARD" means the Board of Directors of the Company.
(d) "EFFECTIVE DATE" means the effective date of the Plan, March
9, 1992.
(e) "ELIGIBLE EMPLOYEES" means full-time key employees (including,
without limitation, officers and directors who are also employees) of the
Company or any Affiliated Corporation or any division thereof, upon whose
judgment, initiative and efforts the Company is, or will be, important to the
successful conduct of its business.
(f) "EMPLOYEE COMMITTEE" means a committee that may be established
by the Board and composed of one or more members of the Board of Directors
who may, but need not be,
<PAGE>
Non-Employee Directors. The Employee Committee may be empowered by the Board
to grant Awards to Eligible Employees who are not directors or "officers" of
the Company as that term is defined in Rule 16a-1(f), promulgated under the
Securities Exchange Act of 1934 (the "1934 Act"), and to establish the terms
of such Awards at the time of grant, but shall have no other authority with
respect to the Plan or outstanding Awards except as expressly set forth
herein.
(g) "FAIR MARKET VALUE" means the officially quoted closing price
of the Stock on the NASDAQ National Market System on a particular date. If
there are no Stock transactions on such date, the Fair Market Value shall be
determined as of the immediately preceding date on which there were Stock
transactions. If no such prices are reported on the NASDAQ National Market
System, then Fair Market Value shall mean the average of the high and low
sale prices for the Stock (or if no sales prices are reported, the average of
the high and low bid prices) as reported by the principal regional stock
exchange, or if not so reported, as reported by NASDAQ or a quotation system
of general circulation to brokers and dealers. If the Stock is not publicly
traded, the Fair Market Value of the Stock on any date shall be determined in
good faith by the Incentive Plan Committee after such consultation with
outside legal, accounting and other experts as the Incentive Plan Committee
may deem advisable, and the Committee shall maintain a written record of its
method of determining such value.
(h) "INCENTIVE PLAN COMMITTEE" means a committee consisting of at
least two Non-Employee Directors who are empowered hereunder to take actions
in the administration of the Plan. The Incentive Plan Committee shall be so
constituted at all times as to permit the Plan to comply with Rule 16b-3 or
any successor rule promulgated under the 1934 Act. Members of the Incentive
Plan Committee shall be appointed from time to time by the Board, shall serve
at the pleasure of the Board, and may resign at any time upon written notice
to the Board.
(i) "INCENTIVE STOCK OPTION" means any Option designated as such
and granted in accordance with the requirements of Section 422 of the
Internal Revenue Code.
(j) "INTERNAL REVENUE CODE" means the Internal Revenue Code of
1986, as it may be amended from time to time.
(k) "NON-EMPLOYEE DIRECTOR" means any member of the Board who
meets the definition of Non-Employee Director under Rule 16b-3 of the 1934
Act.
(l) "NON-STATUTORY OPTION" means any Option other than an
Incentive Stock Option.
(m) "OPTION" means a right to purchase Stock at a stated price for
a specified period of time.
(n) "OPTION PRICE" means the price at which shares of Stock
subject to an Option may be purchased, determined in accordance with
subsection 7.2(b).
-2-
<PAGE>
(o) "PARTICIPANT" means an Eligible Employee, Non-Employee
Director or consultant to the Company designated by the Incentive Plan
Committee from time to time during the term of the Plan to receive one or
more Awards under the Plan.
(p) "PERFORMANCE CYCLE" means the period of time as specified by
the Incentive Plan Committee over which Performance Share or Performance
Units are to be earned.
(q) "PERFORMANCE SHARES" means an Award made pursuant to Section 9
which entitles a Participant to receive Shares, their cash equivalent or a
combination thereof based on the achievement of performance targets during a
Performance Cycle.
(r) "PERFORMANCE UNITS" means an Award made pursuant to Section 9
which entitles a Participant to receive cash, Stock or a combination thereof
based on the achievement of performance targets during a Performance Cycle.
(s) "PLAN YEAR" means each 12-month period beginning April 1 and
ending the following March 31, except that for the first year of the Plan it
shall begin on the Effective Date and extend to March 31 of the following
year.
(t) "RESTRICTED STOCK" Means Stock granted under Section 8 that is
subject to restrictions imposed pursuant to said Section.
(u) "SHARE" means a share of Stock.
(v) "STOCK" means the common stock, $.01 par value, of the Company.
2.2 GENDER AND NUMBER. Except when otherwise indicated by the context,
the masculine gender shall also include the feminine gender, and the
definition of any term herein in the singular shall also include the plural.
SECTION 3
PLAN ADMINISTRATION
The Plan shall be administered by the Board which may from time to time
delegate all or part of its authority under this Plan to the Incentive Plan
Committee and delegate part of its authority under this Plan with respect to
Employees who are not directors or "officers" of the Company (as that term is
defined in Rule 16a-1(f), promulgated under the 1934 Act) to the Employee
Committee. References herein to the Plan Administrator refer to the Board
or, to the extent the Board delegates its authority to the Incentive Plan
Committee, to the Incentive Plan Committee. In accordance with the
provisions of the Plan, each of the Plan Administrator and the Employee
Committee, as applicable, shall, in its sole discretion and except as
specifically set forth at Section 7.1(b), select Participants to whom Awards
will be granted, the form of each Award, the amount of each Award
-3-
<PAGE>
and any other terms and conditions of each Award as the Plan Administrator or
the Employee Committee, as applicable, may deem necessary or desirable and
consistent with the terms of the Plan. The Plan Administrator or the
Employee Committee, as applicable, shall determine the form or forms of the
agreements with Participants which shall evidence the particular provisions,
terms, conditions, rights and duties of the Company and the Participants with
respect to Awards granted pursuant to the Plan, which provisions need not be
identical except as may be provided herein. The Plan Administrator may from
time to time adopt such rules and regulations for carrying out the purposes
of the Plan as it may deem proper and in the best interests of the Company.
The Plan Administrator may correct any defect, supply any omission or
reconcile any inconsistency in the Plan or in any agreement entered into
hereunder in the manner and to the extent it shall deem expedient and it
shall be the sole and final judge of such expediency. No member of the Plan
Administrator or the Employee Committee shall be liable for any action or
determination made in good faith, and all members of the Plan Administrator
and the Employee Committee shall, in addition to their rights as directors,
be fully protected by the Company with respect to any such action,
determination or interpretation. The determination, interpretations and
other actions of the Plan Administrator and the Employee Committee pursuant
to the provisions of the Plan shall be binding and conclusive for all
purposes and on all persons.
SECTION 4
STOCK SUBJECT TO THE PLAN
4.1 NUMBER OF SHARES. Initially, 2,075,334 Shares are authorized for
issuance under the Plan in accordance with the provisions of the Plan and
subject to such restrictions or other provisions as the Plan Administrator
may from time to time deem necessary. This authorization shall be increased
automatically on each succeeding annual anniversary of May 5, 1998 (the
"Adjustment Date") by an amount equal to that number of Shares equal to
one-half of one percent of the Company's then issued and outstanding Shares.
The Shares may be divided among the various Plan components as the Plan
Administrator shall determine, except that (i) no more than 1,750,000 Shares
shall be cumulatively available for the grant of Incentive Stock Options
under the Plan, (ii) no more than 25,000 Shares or the equivalent thereof
shall be cumulatively available for discretionary grants to Non-Employee
Directors of Non-Statutory Options under Section 7.1(a), Restricted Stock
under Section 8, and Performance Shares or Performance Units under Section 9,
and (iii) no more than 175,000 Shares shall be cumulatively available for
non-discretionary grants to Non-Employee Directors of Non-Statutory Options
under Section 7.1(b). Any portion of the Shares added on each succeeding
anniversary of the Adjustment Date which are unused during the Plan Year
beginning on such anniversary date shall be carried forward and be available
for grant and issuance in subsequent Plan Years, while up to 100% of the
Shares to be added in the next succeeding Plan Year (calculated on the basis
of the current Plan Year's allocation) may be borrowed for use in the current
Plan Year. Shares which may be issued upon the exercise of Options shall be
applied to reduce the maximum number of Shares remaining available for use
under the Plan. The Company shall at all times during the term of the Plan
and while any Options are outstanding retain as authorized and unissued
Stock, or as treasury Stock, at least the number of Shares from time to time
required under
-4-
<PAGE>
the provisions of the Plan, or otherwise assure itself of its ability to
perform its obligations hereunder.
4.2 UNUSED AND FORFEITED STOCK. Any Shares that are subject to an
Award under this Plan which are not used because the terms and conditions of
the Award are not met, including any Shares that are subject to an Option
which expires or is terminated for any reason, any Shares which are used for
full or partial payment of the purchase price of Shares with respect to which
an Option is exercised and any Shares retained by the Company pursuant to
Section 15.2 shall automatically become available for use under the Plan.
Notwithstanding the foregoing, any Shares used for full or partial payment of
the purchase price of the Shares with respect to which an Option is exercised
and any Shares retained by the Company pursuant to Section 15.2 that were
originally Incentive Stock Option Shares must still be considered as having
been granted for purposes of determining whether the 1,750,000 Share
limitation on Incentive Stock Option grants provided for in Section 4.1 has
been reached.
4.3 ADJUSTMENTS FOR STOCK SPLIT, STOCK DIVIDEND, ETC. If the Company
shall at any time increase or decrease the number of its outstanding Shares
of Stock or change in any way the rights and privileges of such Shares by
means of the payment of a stock dividend or any other distribution upon such
Shares payable in Stock, or through a stock split, subdivision,
consolidation, combination, reclassification or recapitalization involving
the Stock, then in relation to the Stock that is affected by one or more of
the above events, the numbers, rights and privileges of the following shall
be increased, decreased or changed in like manner as if they had been issued
and outstanding, fully paid and nonassessable at the time of such occurrence:
(i) the shares of Stock as to which Awards may be granted under the Plan;
and (ii) the Shares of Stock then included in each outstanding Option,
Performance Share or Performance Unit granted hereunder.
4.4 DIVIDEND PAYABLE IN STOCK OF ANOTHER CORPORATION, ETC. If the
Company shall at any time pay or make any dividend or other distribution upon
the Stock payable in securities of another corporation or other property
(except money or Stock), a proportionate part of such securities or other
property shall be set aside and delivered to any Participant then holding an
Award for the particular type of Stock for which the dividend or other
distribution was made, upon exercise thereof in the case of Options, and the
vesting thereof in the case of other Awards. Prior to the time that any such
securities or other property are delivered to a Participant in accordance
with the foregoing, the Company shall be the owner of such securities or
other property and shall have the right to vote the securities, receive any
dividends payable on such securities, and in all other respects shall be
treated as the owner. If securities or other property which have been set
aside by the Company in accordance with this Section are not delivered to a
Participant because an Award is not exercised or otherwise vested, then such
securities or other property shall remain the property of the Company and
shall be dealt with by the Company as it shall determine in its sole
discretion.
4.5 OTHER CHANGES IN STOCK. In the event there shall be any change,
other than as specified in Sections 4.3 and 4.4, in the number or kind of
outstanding shares of Stock or of any stock or other securities into which
the Stock shall be changed or for which it shall have been
-5-
<PAGE>
exchanged, and if the Plan Administrator shall in its discretion determine
that such change equitably requires an adjustment in the number or kind of
Shares subject to outstanding Awards or which have been reserved for issuance
pursuant to the Plan but are not then subject to an Award, then such
adjustments shall be made by the Plan Administrator and shall be effective
for all purposes of the Plan and on each outstanding Award that involves the
particular type of stock for which a change was effected.
4.6 RIGHTS TO SUBSCRIBE. If the Company shall at any time grant to the
holders of its Stock rights to subscribe pro rata for additional shares
thereof or for any other securities of the Company or of any other
corporation, there shall be reserved with respect to the Shares then subject
to an Award held by any Participant of the particular class of Stock
involved, the Stock or other securities which the Participant would have been
entitled to subscribe for if immediately prior to such grant the Participant
had exercised his entire Option, or otherwise vested in his entire Award.
If, upon exercise of any such Option or the vesting of any other Award, the
Participant subscribes for the additional Stock or other securities, the
Participant shall pay to the Company the price that is payable by the
Participant for such Stock or other securities.
4.7 GENERAL ADJUSTMENT RULES. If any adjustment or substitution
provided for in this Section 4 shall result in the creation of a fractional
Share under any Award, the Company shall, in lieu of selling or otherwise
issuing such fractional Share, pay to the Participant a cash sum in an amount
equal to the product of such fraction multiplied by the Fair Market Value of
a Share on the date the fractional Share would otherwise have been issued.
In the case of any such substitution or adjustment affecting an Option, the
total Option Price for the shares of Stock then subject to an Option shall
remain unchanged but the Option Price per share under each such Option shall
be equitably adjusted by the Plan Administrator to reflect the greater or
lesser number of shares of Stock or other securities into which the Stock
subject to the Option may have been changed.
4.8 DETERMINATION BY PLAN ADMINISTRATOR, ETC. Adjustments under this
Section 4 shall be made by the Plan Administrator, whose determinations with
regard thereto shall be final and binding upon all parties thereto.
SECTION 5
REORGANIZATION OR LIQUIDATION
In the event that the Company is merged or consolidated with another
corporation (other than a merger or consolidation in which the Company is the
continuing corporation and which does not result in any reclassification or
change of outstanding Shares), or if all or substantially all of the assets
or more than 50% of the outstanding voting stock of the Company is acquired
by any other corporation, business entity or person (other than a sale or
conveyance in which the Company continues as a holding company of an entity
or entities that conduct the business or businesses formerly conducted by the
Company), or in case of a reorganization (other than a reorganization under
the United States Bankruptcy Code) or liquidation of the Company, and if the
provisions of
-6-
<PAGE>
Section 10 do not apply, the Plan Administrator, or the board of directors of
any corporation assuming the obligations of the Company, shall have the power
and discretion to prescribe the terms and conditions for the exercise of, or
modification of, any outstanding Awards granted hereunder. By way of
illustration, and not by way of limitation, the Plan Administrator may
provide for the complete or partial acceleration of the dates of exercise of
the Options, or may provide that such Options will be exchanged or converted
into options to acquire securities of the surviving or acquiring corporation,
or may provide for a payment or distribution in respect of outstanding
Options (or the portion thereof that is currently exercisable) in
cancellation thereof. The Plan Administrator may remove restrictions on
Restricted Stock and may modify the performance requirements for any other
Awards. The Plan Administrator may provide that Stock or other Awards
granted hereunder must be exercised in connection with the closing of such
transaction, and that if not so exercised such Awards will expire. Any such
determinations by the Plan Administrator may be made generally with respect
to all Participants, or may be made on a case-by-case basis with respect to
particular Participants. The provisions of this Section 5 shall not apply to
any transaction undertaken for the purpose of reincorporating the Company
under the laws of another jurisdiction, if such transaction does not
materially affect the beneficial ownership of the Company's capital stock.
SECTION 6
PARTICIPATION
Participants in the Plan shall be those Eligible Employees, Non-Employee
Directors or consultants who, in the judgment of the Plan Administrator, are
performing, or during the term of their incentive arrangement will perform,
important services in the management, operation and development of the
Company, and significantly contribute, or are expected to significantly
contribute, to the achievement of long-term corporate economic objectives, or
who are otherwise granted Awards pursuant to the automatic grant provisions
of Section 7.1(b). Participants may be granted from time to time one or more
Awards; provided, however, that except as to Options granted pursuant to
Section 7.1(b), the grant of each such Award shall be separately approved by
the Plan Administrator, receipt of one such Award shall not result in
automatic receipt of any other Award, and written notice shall be given to
such person, specifying the terms, conditions, rights and duties related
thereto; and further provided that Incentive Stock Options shall not be
granted to (i) consultants, (ii) Non-Employee Directors or (iii) Eligible
Employees of any partnership which is included within the definition of an
Affiliated Corporation but whose employees are not permitted to receive
Incentive Stock Options under the Internal Revenue Code. Each Participant
shall enter into an agreement with the Company, in such form as the Plan
Administrator shall determine and which is consistent with the provisions of
the Plan, specifying such terms, conditions, rights and duties. Awards shall
be deemed to be granted as of the date specified in the grant resolution of
the Plan Administrator, which date shall be the date of any related agreement
with the Participant. In the event of any inconsistency between the
provisions of the Plan and any such agreement entered into hereunder, the
provisions of the Plan shall govern.
-7-
<PAGE>
SECTION 7
STOCK OPTIONS
7.1 (a) DISCRETIONARY GRANT OF OPTIONS. Coincident with the following
designation for participation in the Plan, and notwithstanding the receipt of
an Award or Awards pursuant to Section 7.1(b), a Participant may be granted
one or more Options. Notwithstanding any other provision of the Plan,
Non-Employee Directors granted an award under this Section 7.1(a) may only be
awarded Non-Statutory Options. The Board must approve each such Award and
the interested Non-Employee Director must abstain from voting on the Award.
Eligible Employees may be awarded Non-Statutory Options, Incentive Stock
Options, or both in the Plan Administrator's sole discretion. The Plan
Administrator may grant both an Incentive Stock Option and a Non-Statutory
Option to the same Participant at the same time or at different times.
Incentive Stock Options and Non-Statutory Options, whether granted at the
same or different times, shall be deemed to have been awarded in separate
grants, shall be clearly identified, and in no event shall the exercise of
one Option affect the right to exercise any other Option or affect the number
of Shares for which any other Option may be exercised.
(b) NON-DISCRETIONARY GRANT OF OPTIONS. Upon the initial election
or appointment of a Non-Employee Director to the Company's Board, the
Non-Employee Director shall automatically be granted an Option to purchase
10,000 Shares (subject to adjustment pursuant to Section 10 hereof) effective
as of the date such person is elected or appointed to the Board, which shall
vest in equal installments on the first, second and third anniversaries of
election or appointment to the Board. In addition, each Non-Employee
Director shall automatically be granted an Option to purchase 3,000 Shares
(subject to adjustment pursuant to Section 4.3 hereof) effective as of each
anniversary date of such Non-Employee Directors' election to the Board, which
Option shall vest one year from the date of grant. The purchase price per
Share for the Shares subject to any Option granted under this Section 7.1(b)
shall be 100% of the Fair Market Value of a Share of Stock on the date on
which the Option is granted. Subject to the provisions of Section 7.2(d)(i),
each Option granted under this Section 7.1(b) shall expire ten years after
the date on which it was granted.
7.2 OPTION AGREEMENTS. Each Option granted under the Plan shall be
evidenced by a written stock option agreement which shall be entered into by
the Company and the Participant to whom the Option is granted (the "Option
Holder"), and which shall contain the following terms and conditions, as well
as such other terms and conditions not inconsistent therewith, as the Plan
Administrator may consider appropriate in each case.
(a) NUMBER OF SHARES. Each stock option agreement shall state
that it covers a specified number of Shares, as determined by the Plan
Administrator. Notwithstanding any other provision of the Plan, the aggregate
Fair Market Value of the Shares with respect to which Incentive Stock Options
are exercisable for the first time by an Option Holder in any calendar year,
under the Plan or otherwise, shall not exceed $100,000. For this purpose,
the Fair Market Value of the Shares shall be determined as of the time an
Option is granted.
-8-
<PAGE>
(b) PRICE. The price at which each Share covered by an Option may
be purchased shall be determined in each case by the Plan Administrator and
set forth in the stock option agreement, but in no event shall the Option
Price for each Share covered by an Incentive Stock Option be less than the
Fair Market Value of the Stock on the date the Option is granted; provided
that the Option Price for each Share covered by a Non-Statutory Option may be
granted at any price less than Fair Market Value, in the sole discretion of
the Plan Administrator. In addition, the Option Price for each Share covered
by an Incentive Stock Option granted to an Eligible Employee who then owns
stock possessing more than 10% of the total combined voting power of all
classes of stock of the Company or any parent or subsidiary corporation of
the Company must be at least 110% of the Fair Market Value of the Stock
subject to the Incentive Stock Option on the date the Option is granted.
(c) DURATION OF OPTIONS. Each stock option agreement shall state
the period of time, determined by the Plan Administrator, within which the
Option may be exercised by the Option Holder (the "Option Period"). The
Option Period must expire, in all cases, not more than ten years from the
date an Option is granted; provided, however, that the Option Period of an
Incentive Stock Option granted to an Eligible Employee who then owns stock
possessing more than 10% of the total combined voting power of all classes of
stock of the Company or any parent or subsidiary corporation of the Company
must expire not more than five years from the date such an Option is granted.
Each stock option agreement shall also state the periods of time, if any, as
determined by the Plan Administrator, when incremental portions of each
Option shall vest. Except as provided in Sections 5 and 10, no portion of
any Option shall vest before six months after the date of grant of the
Option. If any Option is not exercised during its Option Period, it shall be
deemed to have been forfeited and of no further force or effect.
(d) TERMINATION OF EMPLOYMENT, DEATH, DISABILITY, ETC. Except as
otherwise determined by the Plan Administrator, each stock option agreement
shall provide as follows with respect to the exercise of the Option upon
termination of the directorship, employment, consultancy or the death of the
Option Holder:
(i) TERMINATION OF DIRECTORSHIP OF NON-EMPLOYEE DIRECTORS.
(A) If a Non-Employee Director's term as a director of
the Company shall terminate for any reason other than death or disability,
any Options held by the Option Holder, to the extent exercisable under the
applicable stock option agreement(s), shall remain exercisable after
termination of his director status for a period of three months, but in no
event beyond the applicable Option Period.
(B) If a Non-Employee Director's term as a director of
the Company terminates because the Participant dies or is disabled within the
meaning of Section 22(e)(3) of the Code while, or within three months after,
serving as a director, any Options then held by the Participant, to the
extent then exercisable under the applicable stock option
-9-
<PAGE>
agreement(s), shall remain exercisable after the termination of his
directorship for a period of twelve months, but in no event beyond the
applicable Option Period.
(ii) TERMINATION OF EMPLOYMENT OR CONSULTANCY.
(A) If the employment or consultancy of the Option
Holder is terminated within the Option Period for cause, as determined by the
Company, the Option shall thereafter be void for all purposes. As used in
this subsection 7.2(d), "cause" shall mean a gross violation, as determined
by the Company, of the Company's established policies and procedures. The
effect of this subsection 7.2(d)(ii) shall be limited to determining the
consequences of a termination, and nothing in this subsection 7.2(d)(ii)
shall restrict or otherwise interfere with the Company's discretion with
respect to the termination of any employee or consultant.
(B) If the Option Holder terminates his employment or
consultancy with the Company in a manner determined by the Board, in its sole
discretion, to constitute retirement (which determination shall be
communicated to the Option Holder within 10 days of such termination), the
Option may be exercised by the Option Holder, or in the case of death by the
persons specified in subsection (C) of this subsection 7.2(d)(ii), within
three months following his or her retirement if the Option is an Incentive
Stock Option or within twelve months following his or her retirement if the
Option is a Non-Statutory Stock Option (provided in each case that such
exercise must occur within the Option Period), but not thereafter. In any
such case, the Option may be exercised only as to the Shares as to which the
Option had become exercisable on or before the date of the Option Holder's
termination of employment or consultancy.
(C) If the Option Holder dies, or if the Option Holder
becomes disabled (within the meaning of Section 22(e) of the Internal Revenue
Code), during the Option Period while still employed or consulting, or within
the three-month period referred to in (D) below, or within the three or
twelve-month period referred to in (B) above, the Option may be exercised by
those entitled to do so under the Option Holder's will or by the laws of
descent and distribution within twelve months following the Option Holder's
death or disability (provided in each case that such exercise must occur
within the Option Period), but not thereafter. In any such case, the Option
may be exercised only as to the Shares as to which the Option had become
exercisable on or before the date of the Option Holder's death or disability.
(D) If the employment or consultancy of the Option
Holder by the Company is terminated (which for this purpose means that the
Option Holder is no longer employed by the Company or by an Affiliated
Corporation) within the Option Period for any reason other than cause,
retirement as provided in (B) above, disability or the Option Holder's death,
the Option may be exercised by the Option Holder within three months
following the date of such termination (provided that such exercise must
occur within the Option Period), but not thereafter. In any such case, the
Option may be exercised only as to the Shares as to which the Option had
become exercisable on or before the date of termination of employment or
consultancy.
-10-
<PAGE>
(e) TRANSFERABILITY. Each stock option agreement shall provide
that the Option granted therein is not transferable by the Option Holder
except by will or pursuant to the laws of descent and distribution or
pursuant to a qualified domestic relations order as defined by the Internal
Revenue Code, Title I of the Employee Retirement Income Security Act
("ERISA"), and that such Option is exercisable during the Option Holder's
lifetime only by him or her, or in the event of disability or incapacity, by
his or her guardian or legal representative.
(f) EXERCISE, PAYMENTS, ETC.
(i) Each stock option agreement shall provide that the method
for exercising the Option granted therein shall be by delivery to the
Corporate Secretary of the Company of written notice specifying the number of
Shares with respect to which such Option is exercised (which must be in an
amount evenly divisible by 100) and payment of the Option Price. Such notice
shall be in a form satisfactory to the Plan Administrator and shall specify
the particular Option (or portion thereof) which is being exercised and the
number of Shares with respect to which the Option is being exercised. The
exercise of the Option shall be deemed effective upon receipt of such notice
by the Corporate Secretary and payment to the Company. The purchase of such
Stock shall take place at the principal offices of the Company upon delivery
of such notice, at which time the purchase price of the Stock shall be paid
in full by any of the methods or any combination of the methods set forth in
(ii) below. A properly executed certificate or certificates representing the
Stock shall be issued by the Company and delivered to the Option Holder. If
certificates representing Stock are used to pay all or part of the Option
Price, separate certificates for the same number of shares of Stock shall be
issued by the Company and delivered to the Option Holder representing each
certificate used to pay the Option Price, and an additional certificate shall
be issued by the Company and delivered to the Option Holder representing the
additional shares, in excess of the Option Price, to which the Option Holder
is entitled as a result of the exercise of the Option.
(ii) The exercise price shall be paid by any of the following
methods or any combination of the following methods:
(A) in cash;
(B) by cashier's check payable to the order of the Company;
(C) by delivery to the Company of certificates
representing the number of Shares then owned by the Option Holder, the Fair
Market Value of which equals the purchase price of the Stock purchased
pursuant to the Option, properly endorsed for transfer to the Company;
provided however, that Shares used for this purpose must have been held by
the Option Holder for such minimum period of time as may be established from
time to time by the Plan Administrator; for purposes of this Plan, the Fair
Market Value of any Shares delivered in payment of the purchase price upon
exercise of the Option shall be the Fair Market Value as of the exercise
date; the exercise date shall be the day the delivery of the certificates for
the Stock used as payment of the Option Price; or
-11-
<PAGE>
(D) by delivery to the Company of a properly executed
notice of exercise together with irrevocable instructions to a broker to
deliver to the Company promptly the amount of the proceeds of the sale of all
or a portion of the Stock or of a loan from the broker to the Option Holder
necessary to pay the exercise price.
(iii) In the discretion of the Plan Administrator, the Company
may guaranty a third-party loan obtained by a Participant to pay part or all
of the Option Price of the Shares provided that such loan or the Company's
guaranty is secured by the Shares.
(g) DATE OF GRANT. Except as provided in Section 7.1(b), an
option shall be considered as having been granted on the date specified in
the grant resolution of the Plan Administrator.
(h) WITHHOLDING.
(A) NON-STATUTORY OPTIONS. Each stock option agreement
covering Non-Statutory Options shall provide that, upon exercise of the
Option, the Option Holder shall make appropriate arrangements with the
Company to provide for the amount of additional withholding required by
applicable federal and state income tax laws, including payment of such taxes
through delivery of Stock or by withholding Stock to be issued under the
Option, as provided in Section 15.
(B) INCENTIVE OPTIONS. In the event that a Participant
makes a disposition (as defined in Section 424(c) of the Internal Revenue
Code) of any Stock acquired pursuant to the exercise of an Incentive Stock
Option prior to the expiration of two years from the date on which the
Incentive Stock Option was granted or prior to the expiration of one year
from the date on which the Option was exercised, the Participant shall send
written notice to the Company at its principal office in Denver, Colorado
(Attention: Corporate Secretary) of the date of such disposition, the number
of shares disposed of, the amount of proceeds received from such disposition,
and any other information relating to such disposition as the Company may
reasonably request. The Participant shall, in the event of such a
disposition, make appropriate arrangements with the Company to provide for
the amount of additional withholding, if any, required by applicable federal
and state income tax laws.
(i) ADJUSTMENT OF OPTIONS. Subject to the limitations contained
in Sections 7 and 14, the Plan Administrator may make any adjustment in the
Option Price, the number of shares subject to, or the terms of, an
outstanding Option and a subsequent granting of an Option by amendment or by
substitution of an outstanding Option. Such amendment, substitution, or
re-grant may result in terms and conditions (including Option Price, number
of shares covered, vesting schedule or exercise period) that differ from the
terms and conditions of the original Option. The Plan Administrator may not,
however, adversely affect the rights of any Participant to previously granted
Options without the consent of such Participant. If such action is affected
by amendment, the effective date of such amendment shall be the date of the
original grant.
-12-
<PAGE>
7.3 STOCKHOLDER PRIVILEGES. No Option Holder shall have any rights as
a stockholder with respect to any Shares covered by an Option until the
Option Holder becomes the holder of record of such Stock, and no adjustments
shall be made for dividends or other distributions or other rights as to
which there is a record date preceding the date such Option Holder becomes
the holder of record of such Stock, except as provided in Section 4.
SECTION 8
RESTRICTED STOCK AWARDS
8.1 AWARDS GRANTED BY PLAN ADMINISTRATOR. Coincident with or following
designation for participation in the Plan, a Participant may be granted one
or more Restricted Stock Awards consisting of Shares. The number of Shares
granted as a Restricted Stock Award shall be determined by the Plan
Administrator.
8.2 RESTRICTIONS. A Participant's right to retain a Restricted Stock
Award granted to him under Section 8.1 shall be subject to such restrictions,
including but not limited to his continuous employment by the Company for a
restriction period specified by the Plan Administrator, or the attainment of
specified performance goals and objectives, as may be established by the Plan
Administrator with respect to such award. The Plan Administrator may in its
sole discretion require different periods of employment or different
performance goals and objectives with respect to different Participants, to
different Restricted Stock Awards or to separate, designated portions of the
Shares constituting a Restricted Stock Award.
8.3 PRIVILEGES OF A STOCKHOLDER, TRANSFERABILITY. A Participant shall
have all voting, dividend, liquidation and other rights with respect to Stock
in accordance with its terms received by him as a Restricted Stock Award
under this Section 8 upon his becoming the holder of record of such Stock;
provided, however, that the Participant's right to sell, encumber or
otherwise transfer such Stock shall be subject to the limitations of Section
11.2 hereof.
8.4 ENFORCEMENT OF RESTRICTIONS. The Plan Administrator may in its
sole discretion require one or more of the following methods of enforcing the
restrictions referred to in Section 8.2 and 8.3:
(a) Placing a legend on the stock certificates referring to the
restrictions;
(b) Requiring the Participant to keep the stock certificates, duly
endorsed, in the custody of the Company while the restrictions remain in
effect; or
(c) Requiring that the stock certificates, duly endorsed, be held
in the custody of a third party while the restrictions remain in effect.
-13-
<PAGE>
8.5 TERMINATION OF EMPLOYMENT, DEATH, DISABILITY, ETC. In the event of
the death or disability (within the meaning of Section 22(e) of the Internal
Revenue Code) of a Participant, or the retirement of a Participant as
provided in Section 7.2(d)(ii)(B), all employment period and other
restrictions applicable to Restricted Stock Awards then held by him shall
lapse, and such awards shall become fully nonforfeitable. Subject to
Sections 5 and 10, in the event of a Participant's termination of services
for any other reason, any Restricted Stock Awards as to which the employment
period or other restrictions have not been satisfied shall be forfeited.
SECTION 9
PERFORMANCE SHARES AND PERFORMANCE UNITS
9.1 AWARDS GRANTED BY PLAN ADMINISTRATOR. Coincident with or following
designation for participation in the Plan, a Participant may be granted
Performance Shares or Performance Units.
9.2 AMOUNT OF AWARD. The Plan Administrator shall establish a maximum
amount of a Participant's Award, which amount shall be denominated in Shares
in the case of Performance Shares or in dollars in the case of Performance
Units.
9.3 COMMUNICATION OF AWARD. Written notice of the maximum amount of a
Participant's Award and the Performance Cycle determined by the Plan
Administrator shall be given to a Participant as soon as practicable after
approval of the Award by the Plan Administrator.
9.4 AMOUNT OF AWARD PAYABLE. The Plan Administrator shall establish
maximum and minimum performance targets to be achieved during the applicable
Performance Cycle. Performance targets established by the Plan Administrator
shall relate to corporate, group, unit or individual performance and may be
established in terms of earnings, growth in earnings, ratios of earnings to
equity or assets, or such other measures or standards determined by the Plan
Administrator. Multiple performance targets may be used and the components
of multiple performance targets may be given the same or different weighting
in determining the amount of an Award earned, and may relate to absolute
performance or relative performance measured against other groups, units,
individuals or entities. Achievement of the maximum performance target shall
entitle the Participant to payment (subject to Section 9.6) at the full or
maximum amount specified with respect to the Award; provided, however, that
notwithstanding any other provisions of this Plan, in the case of an Award of
Performance Shares the Plan Administrator in its discretion may establish an
upper limit on the amount payable (whether in cash or Stock) as a result of
the achievement of the maximum performance target. The Plan Administrator
may also establish that a portion of a full or maximum amount of a
Participant's Award will be paid (subject to Section 9.6) for performance
which exceeds the minimum performance target but falls below the maximum
performance target applicable to such Award.
9.5 ADJUSTMENTS. At any time prior to payment of a Performance Share
or Performance Unit Award, the Plan Administrator may adjust previously
established performance targets or other
-14-
<PAGE>
terms and conditions to reflect events such as changes in laws, regulations,
or accounting practice, or mergers, acquisitions or divestitures.
9.6 PAYMENTS OF AWARDS. Following the conclusion of each Performance
Cycle, the Plan Administrator shall determine the extent to which performance
targets have been attained, and the satisfaction of any other terms and
conditions with respect to an Award relating to such Performance Cycle. The
Plan Administrator shall determine what, if any, payment is due with respect
to an Award and whether such payment shall be made in cash, Stock or some
combination thereof. Payment shall be made in a lump sum or installments, as
determined by the Plan Administrator, commencing as promptly as practicable
following the end of the applicable Performance Cycle, subject to such terms
and conditions and in such form as may be prescribed by the Plan
Administrator.
9.7 TERMINATION OF EMPLOYMENT, DIRECTORSHIP OR CONSULTANCY. If a
Participant ceases to be an Eligible Employee, Non-Employee Director, or
consultant before the end of a Performance Cycle by reason of his death,
permanent disability or retirement as provided in Section 7.2(d)(ii)(B), the
Performance Cycle for such Participant for the purpose of determining the
amount of the Award payable shall end at the end of the calendar quarter
immediately preceding the date on which such Participant ceased to be an
Eligible Employee, Non-Employee Director or consultant. The amount of an
Award payable to a Participant to whom the preceding sentence is applicable
shall be paid at the end of the Performance Cycle and shall be that fraction
of the Award computed pursuant to the preceding sentence the numerator of
which is the number of calendar quarters during the Performance Cycle during
all of which said Participant was an Eligible Employee, Non-Employee Director
or consultant and the denominator of which is the number of full calendar
quarters in the Performance Cycle. Upon any other termination of services of
a Participant during a Performance Cycle, participation in the Plan shall
cease and all outstanding Awards of Performance Shares or Performance Units
to such Participant shall be canceled.
SECTION 10
CHANGE IN CONTROL
10.1 OPTIONS, RESTRICTED STOCK. In the event of a change in control of
the Company as defined in Section 10.3, then the Plan Administrator may, in
its sole discretion, without obtaining stockholder approval, to the extent
permitted in Section 14, take any or all of the following actions: (a)
accelerate the exercise dates of any outstanding Options or make all such
Options fully vested and exercisable; (b) grant a cash bonus award to any
Option Holder in an amount necessary to pay the Option Price of all or any
portion of the Options then held by such Option Holder; (c) pay cash to any
or all Option Holders in exchange for the cancellation of their outstanding
Options in an amount equal to the different between the Option Price of such
Options and the greater of the tender offer price for the underlying Stock or
the Fair Market Value of the Stock on the date of the cancellation of the
Options; (d) make any other adjustments or amendments to the outstanding
-15-
<PAGE>
Options and (e) eliminate all restrictions with respect to Restricted Stock
and deliver Shares free of restrictive legends to any Participant.
10.2 PERFORMANCE SHARES AND PERFORMANCE UNITS. Under the circumstances
described in Section 10.1, the Plan Administrator may, in its sole
discretion, and without obtaining stockholder approval, to the extent
permitted in Section 14, provide for payment of outstanding Performance
Shares and Performance Units at the maximum award level or any percentage
thereof.
10.3 DEFINITION. For purposes of the Plan, a "change in control" shall
be deemed to have occurred if (a) any "person" or "group" (within the meaning
of Sections 13(d) and 14(d)(2) of the 1934 Act), other than a trustee or
other fiduciary holding securities under an employee benefit plan of the
Company or Mr. Michael Smith is or becomes the "beneficial owner" (as defined
in Rule 13d-3 under the 1934 Act), directly or indirectly, of more than
33-1/3 percent of the then outstanding voting stock of the Company; or (b) at
any time during any period of three consecutive years (not including any
period prior to the Effective Date), individuals who at the beginning of such
period constitute the Board (and any new director whose election by the Board
or whose nomination for election by the Company's stockholders was approved
by a vote of at least two-thirds of the directors then still in office who
either were directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason to
constitute a majority thereof; or (c) the stockholders of the Company approve
a merger or consolidation of the Company with any other corporation, other
than a merger or consolidation which would result in the voting securities of
the Company outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into voting securities
of the surviving entity) at least 80% of the combined voting power of the
voting securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation, or the stockholders approve a
plan of complete liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all of the Company's
assets.
SECTION 11
RIGHTS OF EMPLOYEES; PARTICIPANTS
11.1 EMPLOYMENT; TENURE. Nothing contained in the Plan or in any Award
granted under the Plan shall confer upon any Participant any right with
respect to the continuation of his or her employment or consultancy by the
Company or tenure as a Non-Employee Director of the Company, or interfere in
any way with the right of the Company, subject to the terms of any separate
agreement to the contrary, at any time to terminate such employment or
consultancy or to increase or decrease the compensation of the Participant
from the rate in existence at the time of the grant of an Award. Whether an
authorized leave of absence, or absence in military or government service,
shall constitute a termination of services shall be determined by the Plan
Administrator at the time. Nothing in this Plan shall interfere in any way
with the right of the stockholders of the Company to remove a Participant
Non-Employee Director from the Board pursuant to the Delaware General
Corporation Law and the Company's Certificate of Incorporation and Bylaws.
-16-
<PAGE>
11.2 NONTRANSFERABILITY. No right or interest of any Participant in an
Award granted pursuant to the Plan shall be assignable or transferable during
the lifetime of the Participant except pursuant to a qualified domestic
relations order as defined by the Internal Revenue Code, Title I of ERISA,
either voluntarily or involuntarily, or be subjected to any lien, directly or
indirectly, by operation of law, or otherwise, including execution, levy,
garnishment, attachment, pledge or bankruptcy. In the event or a
Participant's death, a Participant's rights and interests in Options shall,
to the extent provided in Section 7, be transferable by testamentary will or
the laws of descent and distribution, and payment of any amounts due under
the Plan shall be made to, and exercise of any Options may be made by, the
Participant's legal representatives, heirs or legatees. If in the opinion of
the Plan Administrator a person entitled to payments or to exercise rights
with respect to the Plan is disabled from caring for his affairs because of
mental condition, physical condition or age, payment due such person may be
made to, and such rights shall be exercised by, such person's guardian,
conservator or other legal personal representative upon furnishing the Plan
Administrator with evidence satisfactory to the Plan Administrator of such
status.
SECTION 12
GENERAL RESTRICTIONS
12.1 INVESTMENT REPRESENTATIONS. The Company may require any person to
whom an Option or other Award is granted, as a condition of exercising such
Option or receiving Stock under the Award, to give written assurances in
substance and form satisfactory to the Company and its counsel to the effect
that such person is acquiring the Stock subject to the Option or the Award
for his own account for investment and not with any present intention of
selling or otherwise distributing the same, and to such other effects as the
Company deems necessary or appropriate in order to comply with federal and
applicable state securities laws. Legends evidencing such restrictions may
be placed on the certificates evidencing the Stock.
12.2 COMPLIANCE WITH SECURITIES LAWS. Each Award shall be subject to
the requirement that, if at any time counsel to the Company shall determine
that the listing, registration or qualification of the Shares subject to such
Award upon any securities exchange or under any state or federal law, or the
consent or approval of any governmental or regulatory body, is necessary as a
condition of, or in connection with, the issuance or purchase of Shares
thereunder, such Award may not be accepted or exercised in whole or in part
unless such listing, registration, qualification, consent or approval shall
have been effected or obtained on conditions acceptable to the Plan
Administrator. Nothing herein shall be deemed to require the Company to
apply for or to obtain such listing, registration or qualification.
12.3 STOCK RESTRICTION AGREEMENT. The Plan Administrator may provide
that shares of Stock issuable upon the exercise of an Option shall, under
certain conditions, be subject to restrictions whereby the Company has a
right of first refusal with respect to such shares or a right or obligation
to repurchase all or a portion of such shares, which restrictions may survive
a Participant's term of service with the Company. The acceleration of time
or times at which an
-17-
<PAGE>
Option becomes exercisable may be conditioned upon the Participant's
agreement to such restrictions.
SECTION 13
OTHER EMPLOYEE BENEFITS
The amount of any compensation deemed to be received by a Participant as
a result of the exercise of an Option or the grant or vesting of any other
Award shall not constitute "earnings" with respect to which any other
employee benefits of such participant are determined, including without
limitation benefits under any pension, profit sharing, life insurance or
salary continuation plan.
SECTION 14
PLAN AMENDMENT, MODIFICATION AND TERMINATION
The Board may at any time terminate, and from time-to-time may amend or
modify, the Plan provided, however, that no amendment or modification may
become effective without approval of the amendment or modification by the
stockholders if stockholder approval is required to enable the Plan to
satisfy any applicable statutory or regulatory requirements, or if the
Company, on the advice of counsel, determines that stockholder approval is
otherwise necessary or desirable.
No amendment, modification or termination of the Plan shall in any
manner adversely affect any Awards theretofore granted under the Plan,
without the consent of the Participant holding such Awards.
SECTION 15
WITHHOLDING
15.1 WITHHOLDING REQUIREMENT. The Company's obligations to deliver
Shares upon the exercise of an Option, or upon the vesting of any other
Award, shall be subject to the Participant's satisfaction of all applicable
federal, state and local income and other tax withholding requirements.
15.2 WITHHOLDING WITH STOCK. At the time the Plan Administrator grants
an Award, it may, in its sole discretion, grant the Participant an election
to pay all such amounts of tax withholding, or any part thereof, by electing
to transfer to the Company, or to have the Company withhold from Shares
otherwise issuable to the Participant, Shares having a value equal to the
amount required to be withheld or such lesser amount as may be elected by the
Participant. All elections shall be subject to the approval or disapproval
of the Plan Administrator. The value of Shares to be withheld shall be based
on the Fair Market Value of the Stock on the date that the amount of tax to
be withheld is to be determined (the "Tax Date"). Any such elections by
Participants to have Shares withheld for this purpose will be subject to the
following restrictions:
-18-
<PAGE>
(a) All elections must be made prior to the Tax Date.
(b) All elections shall be irrevocable.
(c) If the Participant is an officer or director of the Company
within the meaning of Section 16 of the 1934 Act ("Section 16"), the
Participant must satisfy the requirements of such Section 16 and any
applicable rules thereunder with respect to the use of Stock to satisfy such
tax withholding obligation.
SECTION 16
BROKERAGE ARRANGEMENTS
The Plan Administrator, in its discretion, may enter into arrangements
with one or more banks, brokers or other financial institutions to facilitate
the disposition of shares acquired upon exercise of Stock Options, including,
without limitation, arrangements for the simultaneous exercise of Stock
Options and sale of the Shares acquired upon such exercise.
SECTION 17
NONEXCLUSIVITY OF THE PLAN
Neither the adoption of the Plan by the Board nor the submission of the
Plan to stockholders of the Company for approval shall be construed as
creating any limitations on the power or authority of the Board to adopt such
other or additional incentive or other compensation arrangements of whatever
nature as the Board may deem necessary or desirable or preclude or limit the
continuation of any other plan, practice or arrangement for the payment of
compensation or fringe benefits to employees generally, or to any class or
group of employees, which the Company or any Affiliated Corporation now has
lawfully put into effect, including, without limitation, any retirement,
pension, savings and stock purchase plan, insurance, death and disability
benefits and executive short-term incentive plans.
SECTION 18
REQUIREMENTS OF LAW
18.1 REQUIREMENTS OF LAW. The issuance of stock and the payment of cash
pursuant to the Plan shall be subject to all applicable laws, rules and
regulations.
18.2 FEDERAL SECURITIES LAW REQUIREMENTS. If a Participant is an
officer or director of the Company within the meaning of Section 16 of the
1934 Act, Awards granted hereunder shall be subject to all conditions
required under Rule 16b-3, or any successor rule promulgated under the 1934
Act, to qualify the Award for any exception from the provisions of Section
16(b) of the 1934
-19-
<PAGE>
Act available under that Rule. Such conditions are hereby incorporated
herein by reference and shall be set forth in the agreement with the
Participant which describes the Award.
18.3 GOVERNING LAW. The Plan and all agreements hereunder shall be
construed in accordance with and governed by the laws of the State of
Delaware.
SECTION 19
DURATION OF THE PLAN
The Plan shall terminate at such time as may be determined by the Board
of Directors, and no Award shall be granted after such termination. If not
sooner terminated under the preceding sentence, the Plan shall fully cease
and expire at midnight on March 9, 2002. Awards outstanding at the time of
the Plan termination may continue to be exercised or earned in accordance
with their terms.
Amended: May 5, 1998 BASIN EXPLORATION, INC.
By /s/ Michael S. Smith
---------------------------
Michael S. Smith, President
-20-
<PAGE>
FOURTH AMENDMENT OF
AMENDED AND RESTATED CREDIT AGREEMENT
THIS FOURTH AMENDMENT OF AMENDED AND RESTATED CREDIT AGREEMENT (this
"Amendment"), dated as of August 20, 1998, is by and among BASIN EXPLORATION,
INC., a Delaware corporation ("Borrower"), U.S. BANK NATIONAL ASSOCIATION
f/k/a COLORADO NATIONAL BANK (USB"), UNION BANK OF CALIFORNIA, N.A.
("Union"), and NATIONSBANK, N.A. f/k/a NATIONSBANK OF TEXAS, N.A. ("NBT"), in
its capacity as a Lender and as Agent for Lenders. USB, Union and NBT are
herein collectively referred to as "Lenders."
RECITALS
A. Borrower and Lenders entered into an Amended and Restated Credit
Agreement dated as of August 6, 1996 (the "Original Credit Agreement"), as
amended by a First Amendment of Amended and Restated Credit Agreement dated
as of June 11, 1997, a Second Amendment of Amended and Restated Credit
Agreement dated as of November 1, 1997, and a Third Amendment of Amended and
Restated Credit Agreement dated as of April 30, 1998, in order to set forth
the terms upon which Lenders would make loans to Borrower and issue letters
of credit at the request of Borrower and by which such loans and letters of
credit would be governed. Capitalized terms used herein without definition
shall have the same meanings as set forth in the Original Credit Agreement,
as amended as set forth above (the "Credit Agreement").
B. The parties hereto wish to enter into this Amendment in order to
amend certain terms and provisions of the Credit Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of $10.00 and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties hereby agree as follows:
1. CREDIT AGREEMENT. Effective as of the date of this Amendment, the
Credit Agreement shall be, and hereby is, amended as follows:
(a) The following new definitions shall be inserted in proper
alphabetical order in Section 1.1 of the Credit Agreement:
"REGULAR BORROWING BASE"means,at any time during the time
period from August 20, 1998 to the date as of which the November 1, 1998
-1-
<PAGE>
redetermination of the Borrowing Base becomes effective, $85,000,000,
unless Borrower and Lenders hereafter mutually agree upon a different
amount.
"SUPPLEMENTAL BORROWING BASE" means, at any time during the
time period from August 20, 1998 to the date as of which the November 1,
1998 redetermination of the Borrowing Base becomes effective, the excess
of the Borrowing Base over the Regular Borrowing Base.
(b) The definition of "Base Rate Spread" in Section 1.1 on page 1
of the Credit Agreement shall be deleted, and the following shall be
substituted therefor:
"BASE RATE SPREAD" means: (a) for any and all calendar months
that the Capitalization Ratio is greater than or equal to 50 percent,
0.25 percentage points per annum; and (b) for any and all calendar
months that the Capitalization Ratio is less than 50 percent, 0.00
percentage points per annum; provided that, as to any and all amounts by
which the outstanding principal balance of the Loan plus the face amount
of all Letters of Credit outstanding hereunder exceeds the Regular
Borrowing Base, the amounts set forth in clauses (a) and (b) above shall
be increased to 1.00 percentage points per annum.
(c) The definition of Borrowing Base" in Section 1.1 on page 3 of
the Credit Agreement shall be deleted, and the following shall be substituted
therefor:
"BORROWING BASE" means, at any time, the aggregate loan value
of the Borrowing Base Properties, as determined by Lenders in accordance
with the provisions of Section 3.2 below; provided that, for the time
period from August 20, 1998 to the date as of which the November 1, 1998
redetermination of the Borrowing Base becomes effective, the Borrowing
Base shall be $90,000,000, unless Borrower and Lenders hereafter
mutually agree upon a different amount or unless the Borrowing Base is
redetermined pursuant to Section 3.2 below prior to such redetermination
date.
(d) The definition of "Fixed Rate Spread" in Section 1.1 on page 7
of the Credit Agreement shall be deleted, and the following shall be
substituted therefor:
-2-
<PAGE>
"FIXED RATE SPREAD" means: (a) for any and all calendar
months that the Capitalization Ratio is greater than or equal to 50
percent, 1.25 percentage points per annum; (b) for any and all calendar
months that the Capitalization Ratio is less than 50 percent but greater
than or equal to 40 percent, 1.00 percentage point per annum; (c) for
any and all calendar months that the Capitalization Ratio is less than
40 percent but greater than or equal to 30 percent, 0.75 percentage
point per annum; and (d) for any and all calendar months that the
Capitalization Ratio is less than 30 percent, 0.625 percentage point per
annum; provided that, as to any and all amounts by which the outstanding
principal balance of the Loan plus the face amount of all Letters of
Credit outstanding hereunder exceeds the Regular Borrowing Base, the
amounts set forth in clauses (a) through (d) above shall be increased to
2.00 percentage points per annum.
(e) Section 3.6(a) on pages 22 and 23 of the Credit Agreement
shall be deleted,and the following shall be substituted therefor:
Section 3.6. FEES. (a) Borrower shall pay to Agent, on
behalf of Lenders (and Agent shall pay each Lender its respective
Proportionate Share thereof on the Business Day that any such payment is
deemed to be received from Borrower), within 30 days after the end of
each three-month period ending on the last day of January, April, July
or October during the Revolving Period, commencing with the three-month
period ending October 31, 1996, a commitment fee, computed on a daily
basis for such three-month period, in an amount equal to : (i) the
Commitment Fee Rate, times (ii) the excess of the Commitment Amount over
the sum of the outstanding principal balance of the Loan plus the face
amount of all Letters of Credit outstanding hereunder; provided that,
for the time period from August 20, 1998 to the date as of which the
November 1, 1998 redetermination of the Borrowing Base becomes
effective, such fee shall be calculated as follows: (1) (A) the
Commitment Fee Rate, times (B) the excess of the Regular Borrowing Base
over the sum of the outstanding principal balance of the Loan plus the
face amount of all Letters of Credit outstanding hereunder; plus (2) (A)
0.625 percentage points per annum, times (B) the excess of the
Commitment Amount over the greater of: (I) the sum of the outstanding
principal balance of the Loan plus the face amount of all Letters of
Credit outstanding hereunder; or (II) the Regular Borrowing Base.
-3-
<PAGE>
2. LOAN DOCUMENTS. All references in any document to the Credit
Agreement shall refer to the Credit Agreement, as amended and supplemented
pursuant to this Amendment.
3. CONDITIONS PRECEDENT. The obligations of the parties under this
Amendment are subject, at the option of Lenders, to the prior satisfaction of
the condition that Borrower shall have executed and/or delivered, or caused
to have been executed and/or delivered, to or for the benefit of Lenders, the
following (all documents to be satisfactory in form and substance to Lenders):
(a) This Amendment.
(b) Such certificates of officers of Borrower as may be required
by Lenders.
(c) Any and all other Loan Documents required by Lenders,
including without limitation any and all Security Documents required by
Lenders.
4. REPRESENTATIONS AND WARRANTIES. Borrower hereby certifies to
Lenders that as of the date of (and after giving effect to) this Amendment,
except as heretofore disclosed to and waived by Lenders: (a) all of
Borrower's representations and warranties contained in the Credit Agreement
are true, accurate and complete in all material respects, and (b) no Default
or Event of Default has occurred and is continuing under the Credit Agreement.
5. CONTINUATION OF THE CREDIT AGREEMENT. Except as specified in this
Amendment , the provisions of the Credit Agreement shall remain in full force
and effect, and if there is a conflict between the terms of this Amendment
and those of the Credit Agreement, the terms of this Amendment shall control.
Borrower hereby ratifies, confirms and adopts the Credit Agreement, as
amended hereby.
6. EXPENSES. Borrower shall pay all reasonable expenses incurred in
connection with the transactions contemplated by this Amendment, including
without limitation all reasonable fees and reasonable expenses of Lenders'
attorneys and all recording and filing fees, charges and expenses.
7. MISCELLANEOUS. This Amendment shall be governed by and construed
under the laws of the State of Colorado and shall be binding upon and inure
to the benefit of the parties hereto and their successors and assigns. This
Amendment may be executed in any number of counterparts, each of which shall
be an original, but all of which together shall constitute one instrument.
Delivery of this Amendment and any and all documents
-4-
<PAGE>
to be delivered in connection herewith by any party may be effected, without
limitation, by faxing a signed counterpart of this Amendment to NBT (any
party that effects delivery in such manner hereby agreeing to transmit
promptly to NBT an actual signed counterpart).
EXECUTED as of the date first above written.
BASIN EXPLORATION, INC.
By: /s/ NEIL L. STENBUCK
---------------------------
Vice President/Chief Financial
Officer
U.S. BANK NATIONAL ASSOCIATION f/k/a
COLORADO NATIONAL BANK
By: /s/ KATHRYN A. GAITER
---------------------------
Vice President
NATIONSBANK, N.A. f/k/a NATIONSBANK
OF TEXAS, N.A., in its capacity as
a Lender and as Agent for the Lenders
By: /s/ DAVID C. RUBENKING
---------------------------
Senior Vice President
UNION BANK OF CALIFORNIA, N.A.
By: /s/ RANDALL L. OSTERBERG
---------------------------
Vice President
By: /s/
---------------------------
Senior Vice President
-5-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 1,730
<SECURITIES> 0
<RECEIVABLES> 7,667
<ALLOWANCES> 0
<INVENTORY> 204
<CURRENT-ASSETS> 12,337
<PP&E> 285,595
<DEPRECIATION> 71,235
<TOTAL-ASSETS> 226,974
<CURRENT-LIABILITIES> 23,548
<BONDS> 70,500
0
0
<COMMON> 141
<OTHER-SE> 124,668
<TOTAL-LIABILITY-AND-EQUITY> 226,974
<SALES> 36,249
<TOTAL-REVENUES> 36,308
<CGS> 7,197
<TOTAL-COSTS> 31,594
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,288
<INCOME-PRETAX> 3,426
<INCOME-TAX> 1,199
<INCOME-CONTINUING> 2,227
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,227
<EPS-PRIMARY> .16
<EPS-DILUTED> .16
</TABLE>
